On the straight and narrow Straight loan

Commercial Real Estate Funding System

Commercial Real Estate Financing

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A straight loan calls for the payment of interest only during the term of the loan. At the end of the period of the loan, a single payment of the principal is required. Straight loans sometimes are called term loans.

Say you borrow $100,000 to buy a house on a straight loan at 8 percent interest with a term of 20 years. You'd pay $8,000 ($100,000 x 0.08) in interest each year for 20 years. At the end of the 20 years, you'd have to make a single payment to the bank of $100,000, which repays the principal. These loans are used more often for commercial properties than they are for residential properties and may be fixed rate or adjustable rate. See "It's Payback Time: Mortgage Repayment Plans" earlier in this chapter for more about repayment plans. Commercial property owners who sometimes sell their property after five or ten years may want this type of mortgage, because unlike the homeowner, they're not necessarily interested in paying off the property.

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